A business analyst has determined that a project should be worth $2,750,000 in four years if her company decides to pursue the project. Assuming the rate of return on the investment is six percent, what is the minimum amount of funds the organization should invest in this project?
Correct Answer: C
Explanation
To find the minimum amount of funds the organization should invest in this project, we need to calculate the present value of the future cash flow, using the formula:
PV=(1+r)nFV
where PV is the present value, FV is the future value, r is the interest rate, and n is the number of periods.
Plugging in the given values, we get:
PV=(1+0.06)42,750,000
PV=2,178,257.57
Therefore, the minimum amount of funds the organization should invest in this project is $2,178,257.57.
References:
Capability in Business Analysis™ (CCBA®) Handbook, page 14
A Guide to the Business Analysis Body of Knowledge® (BABOK® Guide), page 40 Business Analysis Expert Certification, CCBA® | IIBA®